1. Field of the Invention
The invention relates to financial institution operating procedures, and more particularly, to accelerating the processing of debit transactions.
2. Background of the Invention
Debit transaction processing refers to the processing of a financial transaction by a financial institution, such as a bank. In the transaction an entity authorizes the financial institution to debit an account that contains money belonging to the entity, but held by the financial institution. The financial institution may hold the monies in a checking, savings or other type of customer account. Alternatively, in a transaction an entity may authorize a financial institution to charge a credit account which the entity is liable to repay. Such transactions are commonplace in today's society and form the backbone of our economic system. Each day trillions of dollars worth of debit transactions are processed within the United States.
In the traditional banking business model for customer accounts, a bank tried to maximize the amount of money in the bank based on the view that the more money in the bank, the greater the bank's interest revenues. In this view, accelerating the processing of debit transactions would tend to diminish the amount of money in the bank and therefore diminish revenues and profits. Changes in banking technology, regulation, and economic conditions allow this model to be challenged and refined. Banks have merged, thereby, increasing individual bank size and market share. Interest rates and the cost of funds are low. As a result, bank fee revenues have become increasingly important, compared to interest revenues, in the generation of profits.
Debit transactions may either be customer-initiated or bank-initiated. Debit type as used herein refers to a type of debit posted to a customer account. Examples include a point of sale (POS) debit, a check debit, and an overdraft fee debit. Examples of customer-initiated debit transactions include POS transactions, automatic teller machine (ATM) withdrawals, and paper checks.
Bank-initiated debit transactions may be either service transaction fees or account maintenance fees. Service transaction fees are fees directly associated with a particular type of customer-initiated debit transaction, such as an ATM fee that is charged to the customer's account when an ATM withdrawal is made. Account maintenance fees are fees associated with customer-initiated debit transactions, and often triggered by them. Account maintenance fees can be either customer transaction driven or cycle driven. Account maintenance fees that are cycle driven are debited from a customer account at the end of the banking cycle, which is often a monthly cycle at which time a customer receives a monthly statement. An example of this type of fee is a fee for an account balance dropping below a minimum requirement. Account maintenance fees that are customer transaction driven are fees directly associated with customer-initiated debit transactions, and often triggered by them. These are fees that can be imposed prior to the end of the banking cycle. An example of this type of fee is an overdraft fee imposed when an account balance drops below zero.
Numerous methods and devices exist for processing debit transactions. For example, U.S. Pat. No. 4,933,536 to Lindemann et al., describes a check processing device which is used together with a POS terminal. U.S. Pat. No. 4,810,866 to Lloyd, Jr., describes a check validation system located with a POS system for imprinting and otherwise handling a check. Other examples include U.S. Pat. No. 4,743,743 to Fuakatsu which describes an apparatus where a check is examined by a reader at a POS terminal. Other systems for processing checks have also been the subject of invention. U.S. Pat. No. 4,617,457, for example, addresses an ATM form of cashing checks. These patents focus largely on the problem of how to accept checks and to prevent fraudulent activity.
U.S. Pat. No. 5,484,988 to Hills et al, addresses a further aspect of check transaction processing, in that, the patent relates to a checkwriting POS system that integrates with the automated clearing house (ACH) process, primarily to enable greater flexibility as to the types of purchases that may be made and to eliminate the need for paper checks.
Another category of systems dealing with transaction processing involves electronic check processing (ECP). ECP provides a mechanism for financial institutions to computerize check data at the bank of first deposit (BoFD) and send the electronic representation of the check to the payor's bank at least one business day ahead of the paper check. Because the electronic representation of the paper check arrives before the actual paper check, the posting of the debit can occur prior to bank-to-bank settlement, which is triggered by the presentment of the paper check. ECP applies when the BoFD is not the payor's bank which posts the customer's debit.
A number of U.S. patents and a significant number of industry publications address ECP. For example, U.S. Pat. No. 5,532,464 to Josephson et al., and U.S. Pat. No. 5,783,808 to Josephson et al., address systems to handle various aspects of handling paper checks to convert them to electronic information and manage the delivery of the paper checks in an ECP environment.
Still other devices and systems address other aspects of transaction processing. One such category of devices and systems adds functionality to electronic payment schemes, and makes use of credit and debit cards easier. For example, U.S. Pat. No. 6,408,284 to Hilt, et al., describes an electronic bill payment system that enables consumers to send messages via the Internet directing financial institutions to pay a biller's bill. Similarly, U.S. Pat. No. 6,038,552 to Fleischl et al., describes a method and apparatus to process combined credit and debit card transactions.
Additionally, other methods for transaction processing are disclosed in court cases. See e.g., Compass Bank and Compass Bancshares v. Jucretia Snow et al., 823 So. 2d 667 (Ala. 2001). In these cases banks altered the order in which checks and other debit items presented on a given day are posted to the customer's account. In particular, the banks posted the debit items from largest to smallest, so that more bank-initiated fees would be incurred.
All the above patents and practices deal generally with transaction processing. However, none deals with the issue of accelerating debit transactions relative to credit transactions in a customer account, irrespective of any settlement or settlement date. Furthermore, none deals with accelerating the posting of any type of debit transaction across any business day or number of days. As a result, because the processing of debit transactions has not been optimized, financial institutions may be losing significant revenues that would accrue from accelerated debit transaction processing.
Unfortunately, the determination of the benefits of acceleration of debit transactions is complex and misunderstood. This, in fact, may be why more attention has not been given to this problem. To determine the impacts of accelerating debit transactions, many variables and factors must be considered. These include customer reactions, regulatory limitations, implementation costs and prioritization considerations. The interplay of these factors and industry misconceptions (e.g., related to what day processing of a debit transaction can actually begin) make the task of analyzing the impacts of accelerating debit transactions difficult.
What is needed is a method for increasing financial institution revenues through the acceleration of posting debits to a customer account, relative to the credit transactions in that account and irrespective of any settlement or settlement date.
What is also needed is a method and system to determine and measure the financial impacts of such acceleration.